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The IRA and Senate opposition to a free trade deal with Jakarta are undermining the United States’ green transition.
Without Indonesian nickel, the United States’ electric vehicle market will flounder. My nation sits on the world’s largest reserves of the metal that is central to EV batteries. In 2023, Indonesia exported over half the world’s nickel products. In the coming years, this share is projected to grow.
Yet some members of the U.S. Congress, working together with Indonesia’s foreign competitors, have resolved to stymie the import of refined nickel from my country. So far, they are succeeding. But when taken together with measures passed in March compelling companies to shift away from selling gas-powered vehicles, it is ultimately U.S. auto workers who will lose out.
U.S. President Joe Biden’s Inflation Reduction Act (IRA) has fundamentally altered the playing field. U.S. manufacturers cannot access its subsidies unless inputs come from a country with which the United States has a free trade agreement—which Indonesia does not.
To ensure the necessary supply of nickel to U.S. automakers, last year the government in which I serve proposed a limited trade deal covering critical minerals. So far, nothing has yet been agreed after a concerted campaign to derail it by a bipartisan group of U.S. senators and firms in nickel-producing nations such as Australia.
The senators’ objections tend to focus on environmental concerns. Many Indonesian smelters are powered by coal. For some, that means any battery containing its refined nickel is discredited, despite the net carbon benefit of taking combustion engines off the road. Such climate purity breeds inertia and is ultimately self-defeating. Environmental trade-offs are as critical to the green transition as nickel is to the batteries that will power it.
For the United States to see a significant reduction in emissions, more EV-powered rubber must hit the road. The transport sector is the country’s largest emitter, while less than 1 percent of U.S. vehicles are electric. Their widespread adoption will be contingent on affordability. Cheaper inputs mean cheaper batteries. Free from artificial trade barriers, refined nickel from Indonesia is competitive because coal is abundant in the country.
That may not be ideal. But renewables have yet to offer a cost-effective option to power smelters in Indonesia. Rather than waiting for technology to advance, we must use the resources at our disposal to refine the critical metal today.
Indonesian nickel will become greener. Yet, for this to happen, economic development is crucial. Only with export receipts or foreign direct investment can we begin to reconfigure the energy system. For instance, Harita Nickel, Indonesia’s largest nickel producer, can only introduce renewables at its facilities on the shoulders of its economic success.
Of course, government initiatives can help: Caps and taxes on carbon emissions due to be introduced this year will help stimulate a broader shift away from coal, while new coal stations have been banned. But a genuine green transition in Indonesia ultimately hinges on capital.
Western cash promised under Just Transition partnerships—climate financing mechanisms to wean developing nations off fossil fuels—is not sufficient, regardless of whether pledges are actually delivered. This is not a call for free money but a statement of fact.
To bridge the significant shortfall, developing countries must be allowed to prosper from their existing natural resources so they can play an active role in the global green transition. We cannot and will not be reduced to spectators relying on handouts from benevolent powers.
Meanwhile, for a green transition to maintain public buy-in within Indonesia, it must deliver employment and prosperity for the country’s citizens. In 2020, the government banned the export of raw nickel ore to capture more of the value chain. Investment has since flooded into the country.
Exports of nickel products have risen exponentially to $30 billion annually—the result of Indonesia’s dramatic surge in refining capacity. This year, the first battery power plant will open in Indonesia, a joint venture with South Korean manufacturers. It will create thousands of high-productivity jobs for Indonesians, foster technology transfer, and boost the country’s exports.
Similarly, the IRA was meant to foster U.S. employment, reduce the cost of green energy, and secure supply chains for critical minerals. Instead, it is effectively barring entry of the critical supplies that U.S. manufacturers need to deliver the goods and infrastructure on which transition depends.
In a worst-case scenario, the IRA could lock the United States out of the EV market entirely. S&P Global estimated that by 2035, 90 percent of global nickel supplies will not be covered by U.S. free trade agreements. This could make it impossible for U.S.-based manufacturers to satisfy demand, when supply chains are being forged today that could shape economic relations in the decades to come. A simple solution lies in the U.S.-Indonesian limited agreement that covers critical minerals.
U.S. lawmakers’ environmental concerns over the proposed free trade agreement are also buttressed by tensions between Beijing and Washington. Chinese firms are present in nickel refining in Indonesia. But so, too, are South Korean and even U.S. companies. U.S. manufacturers can source critical minerals from companies that do not run afoul of U.S. Treasury guidance. In fact, a free trade agreement would spur U.S. investment in Indonesia, which would secure its supply chains.
Unless, that is, the United States decides to impose an effective blanket ban on Indonesian nickel simply due to the presence of other nations in the industry. But such a move would contradict U.S. Treasury Secretary Janet Yellen’s reassurance that America’s Indo-Pacific allies should not be forced to choose between China and the United States. Ultimately, Indonesia’s nickel will be exported somewhere.
Indonesia holds its hands out to partner with all. It is up to Washington whether to shake those hands and create a greener future. But my country will not wait indefinitely.
